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REASONS TO ENTER VIETNAMESE MARKET CASE: IKEA Nguyen, Thi Thanh Nhan

2016 Laurea

Laurea University of Applied Sciences

Reasons to enter Vietnamese market - Case: IKEA

Nguyen Thi Thanh Nhan Degree Programme in Bachelor’s/Master’s Thesis March, 2016

Laurea University of Applied Sciences Degree Programme in Business Management Bachelor’s Thesis

Abstract

Nguyen, Thi Thanh Nhan Reasons to enter Vietnamese market- Case: IKEA Year

2016

Pages

28

The purpose of this thesis is to analyze why IKEA, biggest Swedish furniture brand, should enter to Vietnam. Based on research and interviews, the study provides an overview of Vietnamese economy, reasons for the company to open its first branch in Vietnam and suggest how IKEA adapt their strategies to expand and become profitable in Viet Nam. The idea of this literature started after the author's first visited IKEA store in Finland, in 2013. By realized the promising development of IKEA in Vietnamese market, this thesis is conducted to explain the issue in depth. The thesis firstly discusses about the trend of global furniture market in general and IKEA Company background in brief as well as Vietnamese economic overview in order to reveal research motivations and introduce the research topic. Furthermore, by analyzing the IKEA case study and Vietnamese furniture market, the writing describes products and services offering suit the demands and expectations of local target customers. Moreover, based on the studies and interviews, the thesis also provides suggestions about how does IKEA adapt its strategies to expand and become profitable in Vietnam. Furthermore, the literature discussed the method which IKEA would choose to enter the potential market such as franchising. Besides, because of difficulties within the system and the society which are challenges for the Vietnam’s Statistical System (VSS) to increase data quantity, quality and timeliness, the thesis analyzes different resources and data in order to presents a holistic view of Vietnamese economy. For the purpose of the market and consumer research, an interview with 5 questions was conducted. The aim of the interviews was to measure the satisfaction of the customers with existing service providers, and to inquire about the needs of customers for services and delve into the customer's buying behavior. Therefore, based on the interview results, the trends of customer expectations, the author suggest that IKEA have to have willingness to change and adapt their process and system will be concluded.

Keywords: Furniture market, entering a market, Consumers ‘expectations, IKEA, Vietnam.

Table of Contents 1

Introduction ......................................................................................... 5 1.1

Background of study ....................................................................... 5 1.1.1 Brief IKEA company background ................................................. 5 1.1.2 Global furniture industry ......................................................... 6 1.1.3 Vietnamese economic overview ................................................. 6

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3

1.2

Research method ........................................................................... 7

1.3

Research limitation ........................................................................ 7

Vietnamese furniture industry ................................................................... 8 2.1

Overview ..................................................................................... 8

2.2

Furniture industry .......................................................................... 9

2.3

Vietnamese customers` expectation ................................................. 11

IKEA case study ................................................................................... 11 3.1

Company outline ......................................................................... 12

3.2

IKEA products and services ............................................................. 13 3.2.1 IKEA products ..................................................................... 14 3.2.2 IKEA services ...................................................................... 15

3.3 4

5

Development plan in Asian ............................................................. 16

Reason for opening first branch in Viet Nam ................................................ 16 4.1

Products ................................................................................... 16

4.2

Services .................................................................................... 19

4.3

Goodwill when entering Vietnamese market ........................................ 20

How does IKEA adapt its strategies to expand and become profitable in Viet Nam . 22 5.1

Challenges ................................................................................. 22 5.1.1 Fast expansion makes bad affect to the quality ............................ 22 5.1.2 The products could not impact from China. ................................. 22

5.2

Overcome challenges to enter the market .......................................... 23 5.2.1 Adapting lifestyle and culture of Vietnamese people ..................... 23 5.2.2 Overcome external challenges ................................................. 23

6

Discussions ........................................................................................ 24

References ................................................................................................ 25 Figures ..................................................................................................... 27 Appendix................................................................................................... 28

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1

Introduction

Being a country which has large population, strong purchasing power and developing economy, Vietnam becomes a potential market with plenty of opportunities for foreign companies, especially those coming from Western countries. From 2013, many big brands such as McDonald`s, Starbucks, Zara have been started to enter the market. It demonstrated that the world now is quite excited about Vietnam. Because of rising living standard, Vietnamese people have more demands than ever before, especially with furniture market. People started to spend more time, energy and money to decorate their home and office with modern designed products. However, there are just a few choices in the market, either to purchase domestic products or Chinese products as well as importing products with high price being available. The limited sources in furniture industry make it fall short customers` demands. The needs of having a supplier like IKEA where people can buy Western designed products with best price is increasing. That is the reason why the thesis presents how does IKEA, a Swedish giant furniture retailer which provides products with reasonable prices, good quality, well-designed and sustainable, best suit Vietnamese`s expectations. Moreover, it also suggests the strategies which IKEA can apply to adapt to the new market. Furthermore, it is discussed about the method by which IKEA could choose to enter Vietnam. 1.1 1.1.1

Background of study Brief IKEA company background

Swedish furniture giant IKEA was founded by entrepreneur Ingvar Kamprad in 1943. He began by selling pens, wallets and watches by going door to door to his customers. When he started selling his low-priced furniture, his rivals did everything to stop him. Local suppliers were banned from providing raw material and furniture to IKEA, and the company was not allowed to showcase its furniture in industry exhibitions. They innovated to stay in business, designed its own furniture, bought raw material from suppliers in Poland, and created its own exhibitions. Today, IKEA is the world's largest furniture retail chain and has more than 300 stores globally (Chu, et al., 2013). Until 2015, IKEA owns and operates 373 stores in 47 countries. In fiscal year 2010, US$23.1 billion worth of goods were sold, a total that represented a 7.7 percent increase over 2009. The IKEA website contains about 12,000 products and is the closest representation of the entire IKEA range. The company is responsible for approximately 1% of world commercial-product wood consumption, making it one of the largest users of wood in the retail sector (Chu, et al., 2013).

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1.1.2

Global furniture industry

The furniture industry is a labour-intensive and dynamic sector dominated by small and medium-sized enterprises (SMEs) and micro firms. EU furniture manufacturers have good reputation worldwide thanks to their creative capacity for new designs, good quality level and responsiveness to new demands. New technologies and innovation have been combined with cultural heritage and style, and provides jobs for highly skilled workers (European Commission, n.d.). People have the feeling of the great potential expressed by the Asian furniture market and a view to its future evolution, the South East Asian region as a dynamic and promising furniture market, made of different countries with specific features. They stressed the need of adopting a focused retailing strategy in each country, which is a key for success, together with a proper approach to design. Other emerging markets, even if at an early stage of development, are going to be attractive for Chinese export. In India, as illustrated by Rashmi Naicker (Editor, ITP Publishing India), over 200 million people will be added to the local urban and working population in the next 10 years. Consumers are exposed to information age and becoming more demanding in terms of product quality, usage and design (worldfurnitureonline.com, 2015) It is time for the large corporations to pay attention on emerging markets with dynamic economic growth such as Southeast Asian countries. 1.1.3

Vietnamese economic overview

Recent years after economic crisis, early signals of recovering appear promising, the country achieved 6% growth in 2014 (Tan & Chang, 2015) and 6.3% during first half of 2015 (The World Bank, 2015). Moreover, Vietnam economy is projected to continuously increase up to 7% in 2016 in Outlook Conference by Mr. Nguyen Xuan Thanh, CEO of Fulbright; which is considerably outstanding in current global economic situation. Vietnamese government has managed to improve macroeconomic stability, inflation is at low of 1.04% in 2015 (The World Bank, 2015) keep going down in the future, and the consumer price index rising. In addition, trade agreements promise to stretch the investment horizon further. Vietnam is involved in the Trans-Pacific Partnership, a major regional trade agreement involving the US; is in negotiations for a free trade pact with the EU; and the country concluded negotiations for a free trade agreement with the Customs Union (Russia, Belarus and Kazakhstan) in December, 2015 (Tan & Chang, 2015) . Based on researches and studies, the economic is seen as a very potential market for foreign investors. So many big brands has entered the Vietnamese market such as, McDonald’s opened its first franchise in 2014, Starbuck has its first branch in

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2013 in Ho Chi Minh city, and the country became Apple’s fastest-growing market in the global. Furthermore, other big brand in fashion industry for instance Zara will open its first branch in July, 2016. Besides, because of cheap labour, these investors also agree that Vietnam is attractive for its law and order, political stability, the strong work ethic of a relatively young and well-educated population, a high savings rate, as well as a growing middle class and increasing consumer spending. These socioeconomic and cultural factors combine to make Vietnam ideal for foreign direct investment in a way not always seen in other manufacturing countries in South-East Asia. In brief, the economic is justified as a growing economic rapidly unlike other economies in Asia. It is a potential market which is going to explode in 2020 according to economic analysers. 1.2

Research method

Desk research is the main research method in this thesis. According to businessdictionary.com desk research is gathering and analysing information, already available in print or published on the internet (businessdictionary.com, n.d.). The report is compiled from various sources including publications, official data and statistics, newspapers, economic magazines, websites etc. Some information is based on interview with potential customers who are young well-educated people and family. The customers are divided into group as age according to the target of research. Interviews are organized via Skype, Viber and other Social Media channels by “one on one “interviews type. The analysed results and conclusion will be presented. Secondary research offers several advantages for research gathering including: ease of access, low cost to acquire, save time and be economical. First, many conveniences are occurred by the Internet when it changed how secondary research is accessed such as (e.g., online access from many locations) and generally standardized usage methods for all data sources. Second, researchers are often attracted to secondary data because getting this information is much less expensive than if they do research themselves. Then, another advantage of secondary research is enormous saving in resource, in particular the time and money. The method also appropriates for this thesis. That is the reason it is chosen to be the main research method in this study. 1.3

Research limitation

The research focuses mainly on reasons why IKEA should enter Viet Nam and how it adapts to the culture. To make the study more convincing, it is also clarify the real situation of Vietnamese people living standard based on customers` interviews and writer`s knowledge.

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During the time of collecting data, analysing the market and build strategy to take over the market share, it is important to have information about related field such as: GDP, economic growth, etc. However, what we have from the public of GDP or other related economic data do not show the real situation of the country. Therefore, investors who come from foreign countries like European countries or US do not really have a holistic view about the economic in overall. Due to the ineffective General Statistics Office of Vietnam, the GDP and other numbers cannot describe the real speed up development of the economy. There are many difficulties within the system and the society which are challenges for the Vietnam’s Statistical System (VSS) to increase data quantity, quality and timeliness. For example: Because of limited coordination and interaction between data producers and users, improper and insufficient legal frameworks, institutional and organizational structures have been posing difficulties in statistical activities. Besides that, the lack of official dissemination policies are making it difficult to access to data sources as well as raising confusions and suspicions among data users. On the data user side, there exist lacks of trust and under-uses of statistics by government leaders and policy makers. (Ministry of planning and investment, n.d). 2

Vietnamese furniture industry

This part offers a general view of insiders about the economic as well as a comprehensive picture of the furniture sector in Vietnam, providing trends in furniture production and consumption. The study is based on the questionnaire distributed to selected target group. 2.1

Overview

As data showed, Vietnam’s economy has been growing rapidly in recent years. It is assumed that Vietnam may be the fastest growing of Southeast Asia’s emerging economies by 2025. According to latest statistics in 2015, Gross Domestic Product (GDP) is almost 2400 USD comparing to that of 2014 which is 2250 USD. Vietnamese people’s income has improved significantly. As a result, there are many new industry areas and urban, modern cities have been built in Vietnam. Nevertheless, the amount of middle income, which is the most important class in an economy, is also increasing (Ganne, 2015). Even though the growth showing by numbers seem to be promising, the GDP and other numbers cannot describe the real speed up development of the economy because of the ineffective General Statistics Office of Vietnam. In recent years, demand for timely and accurate statistical information for policy formulation, monitoring and evaluation is increasing. Especially when Vietnam enters a new stage of socio-economic development with domestic and international fluctuations, the role of statistics becomes more important than ever. In recent

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years, the Statistics sector has made significant improvements including increases of quality of data collection, improvements of the processing/analyzing tools, and diversification of data dissemination forms. However, there do existed many constraints within the system and the society which are making it challenging for the Vietnam’s Statistical System (VSS) to increase data quantity, quality and timeliness. According to the assessments on various fields of the VSS conducted in 2013, limited coordination and interaction between data producers and users, improper and insufficient legal frameworks, institutional and organizational structures have been posing difficulties in statistical activities. The lack of official dissemination policies are making it difficult to access to data sources as well as raising confusions and suspicions among data users. On the data user side, there exist lacks of trust and under-uses of statistics by government leaders and policy makers. It’s also noticeable that knowledge of statistics, data sources and methodologies is limited among data users causing misunderstanding, misuse, and misinterpretation of statistics (Ministry of Planning and Investment, n.d.). In brief, official economic numbers providing by Statistic system still cannot provide a holistic view of the economy. One of the reasons is that a majority of people has several businesses; however, not all of them could be counted in statistic activities especially such as GDP, taxes. For example: besides that, people do not trade by credit card but cash. That is why; the cash flow in the market is totally different than what was showed in studies because of difficulties in statistic system. Therefore, to analyze the market; people need to have knowledge not only about Vietnam economic but also international experiences with the aim of giving a holistic view.

2.2

Furniture industry

According to a study in the beginning of 2015, The Vietnam furniture industry is characterized by an accelerated influx of foreign investment and the rapid expansion of existing companies. The speedy development and rapid market expansion enjoyed is projected to continue into the foreseeable future. In addition to traditional market in the Asia Pacific, Vietnam furniture has attracted great interest from new markets such as USA and Europe. The attraction is very much attributed to the low cost of products coming out of the country as well as the huge improvement in quality. Vietnam is said to be home to more than 2000 furniture manufacturers, with around 15% export-focused. The numbers are increasing. Even Chinese manufacturers are reported to be crossing the border to set up processing facilities in Vietnam. According to official statistics, there are over 1200 wood processing and manufacturing factories with capacity of around 2 million m3 l...